Wall Street concludes strong week

JOE BEL BRUNOAP Business Writer

Published Saturday, February 17, 2007

NEW YORK -- A larger-than-expected drop in housing starts gave Wall Street a narrowly mixed performance Friday, but the Dow Jones industrials had their third straight record close after spending much of the session in a decline that lacked conviction. The major indexes had their best week since mid-November.

Investors remained somewhat cautious after the Commerce Department said of construction of new homes and apartments sank 14.3 percent in January, the biggest drop in nearly 10 years. But there was upbeat economic news as well that lent support to the market and kept the pullback to a minimum -- wholesale prices fell in January by the largest amount in three months amid retreating energy prices.

Technology stocks were weaker after Microsoft Chief Executive Steve Ballmer said late Thursday that Wall Street's revenue forecasts for the Vista operating system were "overly aggressive." The stock, trading just off its 52-week high, fell more than 2 percent.

Friday's advance gave the Dow its fourth straight gain; the index added 215.02 points since Tuesday. The market's February rally has been driven by growing confidence that interest rates will hold steady as Federal Reserve Chairman Ben Bernanke battles inflation and tries to ease the economy into a soft landing.

"The Microsoft news and the housing data spooked the market," said Jim Herrick, director of equity trading at Baird & Co. "But, this is just a mild drop, not a dramatic sell-off, and I wouldn't be surprised if we see some type of rally."

The Dow rose 2.56, or 0.02 percent, to 12,767.57. It marked the Dow's 30th record close since the start of October and the blue chips' third record close of the week.

For the week, both the Dow and the Nasdaq rose 1.48 percent, while the S&P 500 added 1.22 percent.

Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.69 percent from 4.71 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.

The markets will be closed Monday for Presidents Day.

The Labor Department reported its measure of wholesale inflation, the producer price index, declined 0.6 percent in January to match Wall Street expectations. Excluding food and energy, the core PPI was also in line with projections with a 0.2 percent increase.

However, the markets were startled by a report from the Commerce Department that construction of new homes and apartments sank 14.3 percent in January. This reflects the biggest drop in nearly 10 years.

"Weakness in housing starts will ultimately be good for housing because there is too much inventory out there. But this correction doesn't make it painless," said Stuart Schweitzer, global markets strategist for JPMorgan Private Bank.

He contends that while the slowdown in housing could lead to a rise in unemployment in the construction sector, the overall economy remains solid. A cooling housing sector and an attendant uptick in unemployment could ease concerns about inflation and help the Fed justify an eventual reduction in short-term interest rates. The central bank left rates unchanged at its last five meetings, interrupting a string of 17 straight advances that began in 2004.

"The economic outlook remains sound basically because with inflation under control interest rates can come down if needed and put a safety net under the economy," Schweitzer said.

The consumer version of Vista was released in late January, while businesses received their version in November. DaimlerChrysler AG jumped $3.08, or 4.4 percent, to $73.33 after a trade publication reported that General Motors Corp. is in talks to acquire the troubled Chrysler Group. GM slipped 10 cents to $36.34. GM and Chrysler officials declined to comment on the story in Automotive News, which cited sources in Germany and the U.S. whom it did not identify.

AMR Corp., the parent of American Airlines, rose 92 cents, or 2.4 percent, to $38.97 on speculation a buyout team led by Goldman Sachs Group Inc. and British Airways PLC might make a bid for the company.

Goodyear Tire & Rubber Co. fell 23 cents to $25.18 after it reported a $358 million loss, and operating earnings that missed Wall Street projections. The company blamed the miss on a costly strike at 16 plants.

Declining issues barely outpaced advancers on the New York Stock Exchange, where volume came to 1.36 billion shares.